OpenAI Nears Deal for $100B in Funding

24:05I think what's so interesting is that to this point in the U.S., we've really thought about ByteDance as a social media company. It is also a dominant AI company. And it really seems that that has been a bit lost on the U.S. until now. And I think the turning point has really been over the last week since ByteDance unveiled some new AI models for video generation, for example, and image generation that has really caught on and raised concern, especially from Hollywood, in a very big way. All right, Bloomberg's Alex Levine. It's a must-read report on the Bloomberg about ByteDance building out AI teams in the U.S.

24:38Coming up, we're going to discuss what Mark Zuckerberg had to say about teen social media use when the Meta CEO testified in a landmark trial. We have those details coming up next. This is Bloomberg Tech.

25:02Welcome back to Bloomberg Tech. We're just going to take a quick look at where financial markets are right now. We had a lot of economic data to pass through the morning. Our markets team on the Bloomberg Terminal and on.com are really emphasizing the geopolitical risk that's out there. Also, ongoing concerns about inflation. The Nasdaq 100, very tech-heavy, modestly lower, down 0.3%. Chip stocks taking a breather down 0.8%. And then Bitcoin, now further below$67 ,000 per token. Remember, it's a shorter week in the United States. It was a holiday on Monday, but Bitcoin trades 24-7. And we came back from that holiday weekend with Bitcoin under pressure.

25:39One headline, by the way, Goldman Sachs CEO David Solomon saying he owns a very modest amount of Bitcoin. But remember, he's long been a crypto skeptic and that's not doing much to support the asset either way. We'll keep you posted. Another top story today. Meta CEO Mark Zuckerberg took to the stand in the landmark social media addiction trial. Bloomberg's Riley Griffin was in the courtroom for that testimony. And look, we were building up to this on the program throughout the week. Take us through the lines of questioning and I guess what the top line of what Mr. Zuckerberg had to say in response to those questions.

26:15Yeah, Ed, great question. It was an intense day here in Los Angeles. And yesterday we saw Mark Zuckerberg testify to a number of things. Questions about company documents that showed that Meta had been focused on increasing time spent among young users. Questions about the under 13 demographic on the platform, despite policies that suggest they're not allowed to be there. Still millions of Americans under that age on the platform. Questions about decisions he personally made regarding beauty filters. All of this came to a head with him on the stand at times rather uncomfortable, very subdued. And he did score a couple of wins here and there.

26:57But overall, the picture was painted of a company that made deliberate decisions. Could the user health, the youngest users. Right. You know, Instagram does have age limits and other tools that already exist. And Mr. Zuckerberg basically explained it was very difficult to enforce them. Did he go a step further and explain why it's difficult to enforce them? I think he also talks a little bit about other tools that they are being, let's say, proactive on. Yeah, so one of the cases that Mr. Zuckerberg made was to say that for the youngest users, particularly those without driver's license, it's really hard to verify age.

27:40He took a line that has come up a lot these days, particularly in lobbying efforts, which is to say that phone makers like Apple should do a little bit more to help with that age verification process. In fact, an email was brought forth by Meta's defense to show that he had made efforts to reach out to Tim Cook in the past to look for efforts where they could collaborate on improving teen safety. So he said it's an open secret. They all know that many users are lying about their age. The plaintiff's attorney suggested that Meta had not done enough to enforce that. And there were some documents that showed that Nick Clegg, for example, a former policy chief, had said these policies were basically unenforceable and showed that they weren't doing all that they could.

28:29So we saw it go back and forth. But Mark Zuckerberg's take here was that it's a really difficult challenge, even as they create proactive tools to remove under 13 users. Bloomberg's Riley Griffin, who is on the ground and will continue to cover the trial. Thank you very much. Let's discuss the broader legal implications of the case with Mary Ann Franks. She's a professor at George Washington University Law School in intellectual property, technology and civil rights. And a moment ago, the team was showing the data around what else is happening in parallel with this specific trial. Right. There are 3000 such suits running in parallel.

29:10You also have states, attorneys general, 40 plus looking at this issue. but in the here and now with this specific legal proceeding could you just help us understand what is it questioned here please the primary question that they're trying to address here is are the harms that are being experienced by these plaintiffs and those are some really extensive and really serious ones including in some cases suicide but depression body anxiety body dysmorphia are these things attributable to the design of certain platforms, in particular things like Instagram and Facebook? And so really the question is, who is causing this harm?

29:52What is responsible? Is it the content that these kids are seeking out? Or is it the way that these platforms have designed their tools and services to entice really vulnerable users to stay on the platform for longer and longer periods of time. It was Mr. Zuckerberg who was giving testimony. And, you know, the, I suppose, top line of that testimony was that it is difficult for Meta, in particular through the Instagram app, to enforce what are existing rules. You know, how do you feel that that argument will carry from him? It's not really clear how well that's going to serve, I think, the defense, because really what Zuckerberg seemed to be reiterating was, well, we have all of these really dangerous tools that we know can cause harm, and it's just really hard for us to keep them out of the hands of certain individuals.

30:46But that's just sort of accepting the premise that these kinds of products and services should exist at all, and that it's just an intractable problem about who's going to access them, when the question really should be, why are you creating these types of features? What's the actual use of something like a beauty filter that you know is going to be really attractive to nine and 10-year-old girls? So I think that he's very much trying to say, well, if you assume a world where all of these things have to exist, then it's really hard for us to control access. That's true enough. But why do these things actually have to exist?

31:18We're showing a February 11th statement from Meta specifically tied to this trial. and the back half of it says the evidence will show she, i.e. the plaintiff, faced many significant difficult challenges well before she ever used social media. I'm just putting that that is Meta's statement. Prior to that in November, you know, they had said they strongly disagree with these allegations and confident the evidence will show our longstanding commitment to supporting young people. I'm going to ask the same question again in a slightly different way, that you have the CEO of the company defending what are existing policies and practices, but explaining how difficult it is to enforce them.

31:58Would you just help us understand what pressure will be put on him as the CEO of that company or what changes or what outcome the court could affect how that company does business? Yes. So a lot of things could happen at this point because this isn't just about whether liability is found in these particular cases. This is also the first moment that we're really seeing the general public get a look at what did Mark Zuckerberg know and when did he know it. And so even if in individual cases it's an uphill battle to show absolute causation for these injuries, now we've got information in the hands of the public, in the hands of regulators, in the hands of policymakers, and you've already seen that this kind of attention is causing these companies to change some of their practices.

32:45So they've been giving the kind of PR propaganda about how, well, we're doing our best, but it's really challenging. But every time there's serious consequences that might loom over these platforms, they do start making some changes, although usually they're a little too little too late. We put in writing that this trial will run through the end of March. And again, it's in parallel with a number of other legal proceedings that involve other parties. How much does one trial influence all the others that may happen after very quickly? quite a bit these are this is a bellwether trial and the entire reason why it's been chosen is because it's supposed to give both parties a sense of how this is going to play out and so if it looks as though things are going badly for the defense that could really have an effect on settlements and possibly agreements going forward to have safer products and platforms marianne franks from george washington university law school thank you very much what about the business impact minda smyling senior analyst at e-marketer has been looking into teen social media use and joins us now.

33:45And again, going back to Mr. Zuckerberg's testimony, his argument was that this category or demographic is a small part of the Instagram business. Does your research support that? Yeah. I mean, I think the reality is a little bit murkier than that, right? I mean, I do think he maybe has some points when he says they're not a demographic that is majorly monetized and that they maybe don't bring in a ton of ad revenue. But that does not mean they're not significant. I mean, when you look at our eMarketer data, we see that in the U.S. at least, about 11 % of Instagram users are under the age of 18.

34:21And so, again, not a huge majority, but that's a significant percentage. And also, I think, you know, the numbers tell one story, but the reality is these platforms gain a lot by, you know, essentially hooking these users young because the younger that they get on these platforms, the more likely they are to continue using them in the future. So, again, you can look at the numbers, you can look at maybe how much revenue they're generating from teens per year. But really, it's about setting these behaviors early and benefiting in the long term. Mr. Zuckerberg stated that teens equate to 1 % of revenue, which I thought was an interesting data point.

34:56This question about the future of Instagram in particular, but the other meta family of apps is, well, what would they change? And part of the discussion in the testimony was the tension on the rules they have in place and the privacy of the individuals that are signing up for them. Does that tension have any bearing on how they do business going forward? Yeah, I mean, I think it's still really early to say, but I mean, for sure, I think depending on how these lawsuits play out, if they end up having to fundamentally change how their platforms work, whether it's the algorithms or autoplay, infinite scroll, whatever it might be, that will in turn have an impact on how teenagers use these platforms.

35:38And something we've noticed is that, you know, it was interesting to see him really kind of downplay to what extent Meta has really prioritized time spent as a metric when our numbers show. And just, you know, paying attention to the company in general, we know that time spent is definitely a crucial metric for Meta and all social networks. And we have seen time spent among teenagers specifically rise year over year on Instagram. And so we do see that, you know, anything that would kind of chip away at that time spent, if they would have to make changes to the platform, what would have an impact?

36:09But your research shows that teens are spending significantly more time on TikTok than on Instagram. I think I'm correct in saying right. I just want to point out that with this trial, TikTok and also Snap are not parties to the case because they had settlements prior to it. But if we look bigger picture at the industry, how will these other players be looking at this trial, do you think? Yeah, I mean, I think they're all probably looking at it through a similar lens. I know YouTube is trying to really make the case that it operates very differently than a meta, than a TikTok, than a Snapchat.

36:46And so I think, you know, that could potentially see YouTube play out a little bit differently. But I think in general, yes, especially a company like TikTok, which is kind of, you know, it's really equated with teenage use. Right. A large part of why it became so popular in the U.S. in the first place was because of young people, because of teenagers. So and like, as you said, yes, our figures do show that teenagers spend a ton of time on TikTok, definitely more than Instagram. Although we are seeing that time spent come down a little bit year over year, which kind of suggests that TikTok isn't maybe the shiny new object it was five, six years ago.

37:24The difficult question, Minda, is what happens next, right? And your research, others point to lawmakers putting out a new set of rules. Is there momentum behind that pathway? So, yes and no. I think there is momentum at the state and the federal level. We are seeing lawmakers and regulators try to address a lot of these concerns independent of this lawsuit, these lawsuits. That being said, they're running up against a lot of challenges. One is big tech lobbying. I mean, these companies are lobbying against a lot of these bills and laws. There's challenges happening in court. And then even, you know, generally this tends to be a bipartisan issue.

38:07I mean, we see lawmakers on both sides of the aisle want to kind of rein in the power of these platforms and rein in what they perceive to be harms. But the way they want to go about it often differs. And so that's another challenge. Enforcement is a challenge. We're seeing that play out in Australia with the ban under 16s. You know, they're having a lot of success in some ways, but they are having some enforcement challenges and actually getting people under 16 to completely stay off these platforms. And so it's a messy area to regulate. Minda Smiley. eMarketer Senior Analyst. Thank you. Now, coming up, we're going to hear from Microsoft President Brad Smith on the company's relationship with OpenAI.

38:45That's next. This is Bloomberg Tech. Hello, I'm Michelle Hussain. And for more than 20 years, I was at the BBC. Military withdrawal from Afghanistan. But all the time I was delivering the headlines, I wanted to go further than the news of the day, to spend more time with the people shaping our world. And that's what I'm doing here on this podcast. Speaking to people from Nigel Farage, Russia needs to be taught a lesson, to tech journalist Kara Swisher. And the tech industry is running wild. You know, they've gotten what they wanted and they've seen a huge run up in their stock prices. This will be a place where every weekend you can count on one essential conversation to help make sense of the world.

39:33So please join me, listen and subscribe to The Michelle Hussain Show from Bloomberg Weekend, wherever you get your podcasts. You certainly ask interesting questions.

39:52Microsoft President Brad Smith says the company is on track to spend$50 billion by 2030. to expand AI infrastructure to the global south. He sat down with Bloomberg's Haslinda Armin on the sidelines of India's AI Impact Summit. He also weighed in on the state of Microsoft's partnership with OpenAI. Take a listen. I think it remains a critically important partnership for Microsoft. We bet on each other, but it's not as exclusive as it was, say, a few years ago. OpenAI uses our compute. They train models in our data centers, but they work with other companies as well. We critically rely on OpenAI's frontier models.

40:34They are among the best. In many days, they are the best in the world. But we have a relationship with Anthropic. We use open source models. We're developing our own models. So on both sides, we work with more partners. But I think the partnership between the two of us remains an imperative. It's a huge priority for us at Microsoft. The question is why. Is it a hedge? Is it a strategic pivot? How would you describe that move looking at alternative partners? Well, look, if you want to think about the partnership between OpenAI and Microsoft, all you have to do is ask one question. Would any of this generative AI sector even exist if the two of us had not come together?

41:19OpenAI created something that no one else even understood was possible when they launched ChatGPT. And OpenAI could never have created that without Microsoft's compute and really frontier data centers on which to train that. We built something special. We'll each do special things on our own. We'll each do special things with other companies. will each do, I think, very special things with each other. Just one final question because we're running out of time apparently. Co-pilot, is it losing traction? I don't think so. It's gaining ground. It's getting better every week. It's getting better every month.

42:00I say this as a user, not just of M365 Co-pilot, but our consumer Co-pilot, our researcher agent, our other agents. We're seeing usage grow. we will continue to add features and functionality. I personally think it is an important part, not just of Microsoft's past and present. It is a key part of our future. It is a key part of, I think, making everyone more creative, more productive. I certainly find that in my own work each and every day. That was Microsoft Vice Chair and President Brad Smith, along with Bloomberg's In other news out of the summit, Microsoft co-founder Bill Gates backed out of a keynote address just hours before he was due to speak, replaced instead by the president of the Gates Foundation's Africa and India offices.

42:51The foundation explained the decision as an effort to ensure the focus remains on the conference without elaborating. The withdrawal follows criticism of Gates' relationship with convicted sex offender Jeffrey Epstein and speculation about whether that link could overshadow the foundation's broader mission. Coming up, there is more drama around the sale of Warner Brothers Discovery. We'll discover that next. This is Bloomberg Tech.

43:27Hollywood is no stranger to a plot twist. Take the latest development in the saga to purchase Warner Brothers Discovery. According to sources, the Justice Department has summoned some of the country's largest theater chains to discuss the potential impact of a sale to either Netflix or Paramount Skydance. This coming on the heels of Warner Brothers reopening deal talks with Paramount. Now, all this drama should be seen as one twist too many for Netflix, according to Bloomberg Intelligence. Let's bring in the author of that research, BI senior analyst Geetha Ranganathan. Investors have voiced this, right?

44:03There is this idea that now might be the time for Netflix to walk away from some corners of the market. I think last week Ankora came out in favor of that. But you at BI have some pretty clear reasons why you think Netflix should walk away. Just outline them for us. Yeah, absolutely. I mean, this has been a major distraction, Ed, now for over a couple of months right now. And we've seen that even as a reflection on the stock price. But it just kind of really muddies a really clean narrative for the company. And I think from our perspective, yes, we do see that Netflix obviously has a lot of financial firepower.

44:40They are an absolute free cash flow machine. They're probably going to generate about 11 billion in free cash flow this year. There's no doubt about that. But there is going to be the question of leverage. So if they do take up their offer, it's currently about$27.75. They risk pushing close to almost four times leverage as they go up to maybe$30,$32. We don't know what that final number is going to be. And then, you know, you're going to deal with how do you reduce debt? So it just becomes a big problem there. And then, of course, you just have the general concerns with integration risk, execution risk.

45:13And remember, with this, you know, Netflix is really acquiring a business that they always wanted to stay away from. They're acquiring a traditional. Yes, they do get the library, the fantastic IP, the HBO library, which is one of a kind when it comes to scripted dramas. But then you also really are increasing your dependence on Hollywood. And the whole reason that Netflix has done so well, Ed, is because they have been a global powerhouse. They have not just depended on Hollywood for content. They have gone to so many different local markets. International has been such a big deal for them. But, you know, as we kind of see the union contracts kind of coming up, you know, we think that increasing the dependence on Hollywood is actually more of a negative than a positive for Netflix.

45:57Just very quickly, Geetha, the stock's down more than 30 percent since this started. Is that a signal or is it real pressure on management? So a couple of different things. I think a lot of it hinges on what the outcome of this whole Warner Brothers discovery deal is going to be. But then Netflix also has some problems. They have shown that they haven't really been able to grow engagement. And a lot of people have argued that maybe that is why that they're pursuing Warner Brothers discovery in the first place. So, you know, they have a couple of things to do in terms of increasing their operating margin, in terms of boosting engagement.

46:29And if they do that, then I think management has a pretty good story why they don't need Warner Brothers discovery. Keith Arangana from Bloomberg Intelligence. Thank you very much. And we will be speaking with Netflix co-CEO Ted Sarandos in about 30 minutes time. So stick around. That does it for this edition of Bloomberg Tech. Recap what was an incredible news show on the podcast. You know where to find it. This is Bloomberg Tech.

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